1. Field of the Invention
The present invention relates to the field of financial securities, investment banking, tax law, credit rating, credit enhancement, electronic exchanges, generally accepted accounting principles and securities law, and more particularly, to innovative financial processes; and creative solutions to corporate finance problems, using techniques that minimize risk, reduce issuance cost and mitigate interest rate changes and their distribution to various third party investors through an Investment Platform that consists of investment methods, products, and systems.
2. Description of the Related Art
Presently, there is a large array of different types of investment opportunities and securities offerings that are available to investors from a variety of issuers including equity, quasi-equity, certificates of deposit, medium term notes, preferred securities, debentures, and other forms of secured and unsecured debt. Each of these different types of opportunities can offer investors different financial and performance characteristics (e.g., with respect to financial stability, rate of return, and investment structure). Many such existing types of financing and investment opportunities, however, have drawbacks that include that they do not: 1) adequately protect the investor(s) with respect to the loss of the investor(s)' capital contribution to the investment; 2) protect the expected cash flow of the investment (e.g., in the case of default) 3) have a risk reward ratio that is suitable for non-qualified investors (but rather have a high risk reward ratio geared solely for institutional investors) or 4) otherwise have the requisite features to be readily available or suitable for the non-qualified investor.
For example, in most investments the investor provides a party with capital in exchange for an equity interest in some financial enterprise, a debt obligation of someone's, beneficial interests in equity or debt, or for other consideration. Such investments typically carry the risk for investors that they may lose all or part of their investment if the financial product fails or upon the occurrence of certain financial events.
The most common method of addressing this risk of loss is to have the investment guaranteed, credit enhanced or insured by a financially sound party to the transaction or third party, such as an insurance company or other financial institution or insurance portfolio. When repayment of an investment is assured by an insurance company, such assurance is typically evidenced by some form of insurance policy. When repayment of an investment is assured by another type of financial institution, it typically takes the form of a guarantee.
There exist many methods of portfolio insurance such as OBPI (Option Based Portfolio Insurance), CPPI (Constant Proportion Portfolio Insurance), and Stop-loss, etc. Equity and fixed income based structured products offered by financial institutions in the 1980's widely used the CPPI method.
Usually, institutional asset managers don't directly bear the market risks on the asset portfolios they manage for their customers. This is not necessarily true when they insure or guarantee the value of the portfolios they manage or other portfolios. In that case, consequences of sudden large market's decrease may be totally borne by the institution providing the insurance or guarantee, depending on the method of insurance they use.
In the 1980's, one form of guaranteed investment became popular: the principal protected note (“PPN”). A PPN is typically a promissory note (a type of debt security and a negotiable instrument regulated by article 3 of the Uniform Commercial Code), issued by an entity, the repayment of principal (and sometimes interest) of which is either entirely or partially guaranteed by a bank or other financial institution. What is unique about many PPN's is that their return is tied to the performance of a separate type of investment, such as one or more investment funds (sometimes referred to as a reference fund), a basket of stocks, commodities, indices, funds or other items. The PPN permits the investor to participate, to some extent, in the performance of that other type of investment without taking all or a portion of the risk of the loss of the corpus of the investor's investment. One drawback often seen in PPN's is that many of them do not pay out any return until the maturity of the PPN. Another drawback is that is that if the PPN is not fully guaranteed in all situations, the investor still bears the risk of loss of all or a portion of its investment if the conditions under which the note is not fully guaranteed occur.
In some prior art investment methods, an investor invests in a particular structured product which uses partial or no portfolio insurance or guarantees to protect the investor contributions. Such methods, however, are tied to the fundamentals and susceptible to market risks of the particular investment.
There is currently a great demand and activity in the investment and financial community related to high credit quality credit enhanced issuances. With respect to holding PPNs or similar forms of debt issuances as a principal form of investment, PPNs can provide a stable financial vehicle but they suffer from certain drawbacks such as the lack of an active trading market for the PPN thereby providing the investor with market liquidity based on current net asset value (NAV) of the investment. In addition, even in the field of structured note products, known techniques do not take advantage of the many features of PPNs to appropriately benefit investors such as to protect principal contributions of investors.
The financial markets worldwide are always looking for new forms of financial securities that can raise additional money for corporations or other financial entities and are attractive to investors. Companies have financial product engineers who are constantly looking for better structures for securities in order to raise more money for corporations, provide investment products attractive and suitable for investors and provide fees to the investment banking company. The financial securities must comply and operate within applicable tax, securities and other laws and regulations.
It would be desirable for methods, systems and products to be developed that take full advantage of the broadening the field to non-investment grade issuers in order to broaden the investible universe of marketable securities.
3. Objects and Advantages
The main objective of the invention is to:
A) Create a superior Open-offer Securities pricing, reverse inquiry auction and distribution platform for issuers of debt securities.
B) Create a superior risk mitigated investment process that can be offered to non-qualified as well as institutional investors.
C) Create a superior instrument that investors will prefer to invest in comparison to alternative structured products, PPN investment products or any other innovative financial products.
D) Create a superior hedged investment structure financial product that automatically qualifies for credit enhancement wherein non-investment grade debt issuances can be transformed into investment grade debt issuances.
E) Create a superior instrument that may raise more money for a corporation than traditional issuances of debt, convertible debt and/or equity.
F) Allow any financial institution issuing debt securities to be able to compete better financially and for investors with domestic and international financial entities that issue similar debt securities.
G) Create an innovative security that bundles traditional debt and equity/quasi-equity and an investment in an investment unit.
H) Create an innovative security that bundles jumbo certificates of deposit (“CD”), I/O (interest only) CD Strips, P/O (principal only) CD Strips, non-cumulative perpetual preferred stock and annuities and an investment in an investment unit.
I) Create a security that has the ability to replace and replenish the equity of a company and provide balance sheet enhancement pursuant to laws and regulation.
J) Create a superior hedged investment structured financial product wherein the First Party can purchase a Second Party's existing Debt Instrument issuances in a secondary market transaction from a new party (the “Fourth Party”).